Gambling Preferences for Loser Stocks

54 Pages Posted: 14 Jul 2020

See all articles by Peixuan Yuan

Peixuan Yuan

Renmin University of China - School of Finance

Date Written: June 1, 2020

Abstract

I discover that investors' preferences for gambling mainly involve stocks that have performed poorly in the past three months, as lottery-like stocks with poor performance are much more likely to generate large payoffs than those with good performance (61.53% vs. 40.17%). Furthermore, lotto investors tend to believe that lottery-like stocks with poor performance may have a vigorous rebound shortly, while those with good performance may be less likely to produce a highly positive return given their high prices. Therefore, lottery-like stocks with poor performance have a highly effective lottery-like look, and thus they attract lotto investors. On the other hand, loser stocks without lottery-like features may continue to perform poorly. Overly optimistic (pessimistic) beliefs about stocks with (without) lottery-like features result in a pronounced lottery premium among loser stocks.

Keywords: Gambling Preference, Past Performance, Effective Lottery-Like Features, Lotto Investors

JEL Classification: G10, G11, G12, G14

Suggested Citation

Yuan, Peixuan, Gambling Preferences for Loser Stocks (June 1, 2020). Available at SSRN: https://ssrn.com/abstract=3632599 or http://dx.doi.org/10.2139/ssrn.3632599

Peixuan Yuan (Contact Author)

Renmin University of China - School of Finance ( email )

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

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